For the struggling graduate, there are options concerning student loans. Many of these high-interest loans will add up exponentially throughout the years. Action needs to be taken to ensure these loans don’t go sky-high. Defaulting on a student loan can lead to some serious consequences that should be avoided at all costs. A graduate may decide to refinance one or more student loans. This a great option that’s available.
Refinancing a loan may lower the interest rates on the loan, consolidate several loans into a single payment, and/or receive lower monthly payments towards the loan. While these all sound like excellent qualities (and they are), there are drawbacks to refinancing. The overall cost of the loan may go up due to the consolidation and the previous interest rates, and some of the original incentives may be taken away by the loan provider. For instance, graduates in the teaching or public service fields could potentially lose the option of their forgiveness programs upon refinancing.
Yet, if the good seems to significantly outweigh the bad, here are the steps needed to refinance a student loan. First, know the type of loan. There are both federal and personal loans that can be borrowed by a student. Federal loans will have special terms and rates. These two types of loans cannot be consolidated together, so their payments will continue to be separated. Next, compare the interest rates on several of the loans. Private lenders can give a proper feel for the different options available. Refinancing choices should also be researched. This can be done by contacting the loan servicer.
Refinancing will basically extend the repayment length of the loans. Since the repayment period is longer, there should be lower monthly payments. This is not always the case, so be wise and research all the benefits and drawbacks beforehand. Furthermore, a longer repayment period means interest will accrue for a lengthier amount of time. While the interest rates may be lower after refinancing, money will still add up.
Only go through with the refinancing if it guarantees to save money and hand out benefits in the long-run. People with a secure job, emergency savings, and strong credit may benefit from the lower monthly payments eligible with refinancing. There is no reason to refinance a loan if it is close to being paid off. Extending the time period of repayment can also be costly, as interest rates will still add up. Make sure to receive fixed interest rates, rather than variable ones. Basically, cross all the t’s and dot all the i’s before signing that document.